As companies integrate artificial intelligence (AI) into their operations, the potential for AI-related risks increases. The recently filed lawsuit, AF et al. v. Character Technologies, Inc. et al.illustrates the severity of this risk. The lawsuit not only highlights the potential risks associated with products that use AI technology, but also shows how insurance can help mitigate those risks.

The Character technologies allegations

In Character technologiesThe plaintiffs allege that Character Technologies’ AI product poses various risks to American youth, including an increased risk of suicide, self-mutilation, sexual solicitation, isolation, depression, anxiety, and harm to others. The complaint alleges that the AI’s design and data encourage violent and sensational responses from youth. The complaint provides explicit examples of AI-controlled behavior, including cases in which the AI ​​allegedly encouraged minors to engage in violent and self-harm acts and encouraged aggressive behavior toward others.

Insurance implications of Character technologies

Character technologies shows how traditional liability insurance can serve as an important first line of defense when AI-related risks are expressed in legal action. For example, general liability insurance and a deductible typically cover the costs of defending and settling lawsuits involving personal injury or property damage Character technologies. General liability insurance largely protects companies from claims arising from business operations, products or services. If AI is used in the course of the insured’s business, claims arising from that use should be covered unless specifically excluded.

As AI systems become more sophisticated and integrated into business processes, products and services, their potential to cause unintentional harm may increase. This evolving risk landscape means that legal claims related to AI technologies are likely to become more frequent and complex. We may also expect questions about the scope and availability of coverage for AI-related claims and actions. Businesses leveraging AI would therefore be wise to carefully review their insurance policies, including their general liability policies, to understand the extent of their AI-related coverage and whether additional endorsements or specialized policies may be required to address it to close any gaps in coverage.

Additionally, as AI risks become more prevalent, companies may also want to explore other types of insurance. For example, directors and officers insurance (D&O insurance) responds to allegations of poor decisions made by company managers when using AI, while property insurance should cover property damage caused by AI, including resulting business interruption losses.

Of course, not all AI risks may be covered by traditional insurance products. For example, underperforming AI models could lead to uncovered financial losses. If resulting losses or claims do not fit within the contours of existing coverage, new AI-specific insurance products such as aiSure from MunichRe can close the gap. Conversely, some insurers, such as Hamilton Select Insurance and Philadelphia Indemnity Company, are introducing AI-specific exclusions that can serve to widen coverage gaps. These evolving dynamics make it prudent for companies to holistically review their insurance programs to identify potential uninsured risks.

To effectively manage AI-related risks, companies may want to conduct thorough risk assessments to identify potential risks. This could include evaluating the data used for AI training, understanding AI decision-making processes, and predicting unintended consequences. It may also be important to proactively talk to insurance carriers about risks related to AI. Companies may also want to work with insurance brokers and legal advisors to review existing policies and tailor coverage to appropriately address AI-specific risks.

In summary: Character technologies highlights potential risks companies face when using AI and highlights the potential importance of comprehensive insurance strategies. As AI becomes increasingly important to business operations, companies may think about their insurance needs early and often to protect themselves from unforeseen challenges. By remaining informed and proactive, companies can navigate the evolving landscape of AI risk and insurance, ensuring their continued success in an increasingly AI-driven world.